Investor Lawyers Blog

FINRA Bans Dallas Broker For Recommending Ponzi Scheme to Investors

Published on: October 25, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority (FINRA) has banned Stuart G. Dickinson, a Dallas broker, from the securities industry for recommending that customers back a Ponzi scheme. At the time, Dickinson was with WFG Investments. The firm fired him in 2013.

In addition to the bar, Dickinson must pay seven customers $924K in restitution over the Texas securities fraud. According to FINRA’s default decision notice, Dickinson failed to perform the reasonable due diligence on ATM Financial services (ATMF) and did not detect the red flags indicating that it was a sham. As a result, said the self-regulatory organization, investors lost $1.02M.

It was in 2007 that Dickinson sold over $1M in limited partnership interests in ATM Alliance. He had formed contracts with the company to service and manage ATM machines in a number of locations. Dickinson established a general partnership to raise funds for the ATM investments and he became a 90% owner while his supervisor Trent W. Schneiter became a 5% owner. As part of the agreement, they would earn 20% off what the banking machines made.

Ex-Oppenheimer Broker Pleads Guilty in Insider Trading Case

Published on: October 25, 2016 | by Shepherd Smith Edwards & Kantas, LLP

David Hobson, an ex-Oppenheimer & Co (OPY) investment adviser, has pleaded guilty to the criminal charges of securities fraud and conspiracy to commit securities fraud. The 47-year-old Rhode Island broker admitted that he engaged in insider trading using information given to him by investment client Michael Maciocio in order to make illegal profits. Maciocio has already pleaded guilty to the charges in the insider trading case against him.

According to Preet Bharara, the United States Attorney for the Southern District of New York, between 5/2008 to 4/2014 Hobson and Maciocio sought to trade on insider information regarding acquisitions that a particular pharmaceutical company was considering. Although Bharara’s release doesn’t name the company, Law360 identified the company as Pfizer Inc. Bharara said that Maciocio, who was master planner in Pfizer’s active pharmaceutical ingredient supply chain group, would find out about the upcoming acquisitions and tip Hobson.

Bharara’s statement said that even though Maciocio was not given access to the acquisitions that the pharmaceutical company was targeting, he would use the code name of the acquisition, the drug indication, the dose, the clinical trial phase, and/or the drug’s chemical structure to find out the name of the company that Pfizer was considering acquiring. Maciocio would trade based on this information and share the information with Hobson. The two men have been friends since childhood.

Deutsche Bank Settles Silver Rigging Allegations for $38M

Published on: October 24, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Deutsche Bank (DB) has agreed to pay $38M to settle a securities lawsuit alleging that it colluded with other banks to manipulate silver prices. According to Reuters, this agreement could compel other banks that have been accused of the same misconduct to settle.

According to the complaint, investors are accusing the German lender, Bank of Nova Scotia (BNS), and HSBC Holdings (HSBC) of fixing silver prices. They purportedly did this during a secret meeting conducted daily known as the Silver Fix. The silver manipulation scam allegedly began in 2009 and the alleged colluders suppressed prices on about $30B of silver financial instruments and silver that were traded annually. As a result of the alleged silver manipulation scam, banks were purportedly able to make returns that could exceed 100 percent annualized.

Investors claim that UBS AG (UBS) exploited the silver rigging. However, U.S. District Judge Valerie Caproni dismissed the Swiss lender from the case. She said that even if UBS profited from the silver manipulation there was no evidence provided to show that the Swiss bank had rigged prices.

DOJ to Sue Moody’s Over Mortgage-Backed Securities

Published on: October 21, 2016 | by Shepherd Smith Edwards & Kantas, LLP

According to a letter written by prosecutors to Moody’s (MCO), the U.S. Department of Justice intends to sue the credit rating agency and its Moody’s Investors Services unit over valuations that the latter assigned to mortgage-backed securities leading up to the 2008 financial crisis. The MBS fraud case is expected to make claims about the way the agency rated collateralized debt obligations and residential mortgage-backed securities, as well as allege violations of the Financial Institutions Reform, Recovery, and Enforcement Act as it pertains to rating RMBSs and CDOs. Moody’s disclosed the expected case in an update that also included third quarter earning results.

Aside from the DOJ case, several states’ Attorney Generals are expected to pursue their own claims against Moody’s, except that their cases would be brought under state law.

A number of ratings companies have come under fire over their alleged failure to provide accurate warnings about the risks involved in investing in MBSs and CDOs leading up to the economic crisis. In 2013, the DOJ sued Standard & Poor’s over similar allegations, along with the claim that the agency misled investors for its own profit while misrepresenting the actual risks involved in the securities. Last year, S & P settled with the DOJ, the District of Columbia, and 19 states for almost $1.4B. The government and the states took issue with the way S & P rated the CDOs and RMBSs that it issued from ’04 to ’07.

Securities Cases: Merrill Lynch Ordered to Pay $2.8M for Supervisory And Other Violations, Ernst & Young Agrees to Pay $11.8M for Failed Audits, and Ex-Morgan Stanley Client Administrator is Suspended Over Fraudulent Wire Transfer

Published on: October 20, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Financial Industry Regulatory Authority Fines Merrill Lynch $2.8M

FINRA has fined Merrill Lynch, Pierce, Fenner and Smith Inc. $2.8 million. By settling, the firm is not denying or admitting to the self-regulatory organization’s charges.

FINRA said because of system errors, Merrill Lynch inaccurately reported millions of trades. The regulator said that Merrill Lynch’s supervisory system as it relates to specific matters related to documenting, reporting, and records was not designed in a reasonable manner.

Ernst & Young Settles Audit Failure Charges By Agreeing to Pay Over $11.8M

Ernst & Young LLP has agreed to resolve U.S. Securities and Exchange Commission charges accusing it of audit failures. The monetary settlement, along with the $140M penalty that audit client Weatherford International agreed to pay separately, will go back to investors who were hurt in the accounting fraud.

FINRA Warns Investors to Be Careful When Considering Public Non-Traded Real Estate Investment Trusts

Published on: October 19, 2016 | by Shepherd Smith Edwards & Kantas, LLP

In a recent Investor Alert, the Financial Industry Regulatory Authority said that it wants investors to be aware of the risks involved in investing in non-traded real estate investment trusts that are publicly registered. The regulator is also recommending that investors ask the right questions regarding benefits, fees, and features.

Nontraded REITS invest in real estate, must be registered with the SEC, and are required to make regulatory disclosures. Unlike exchange-traded REITs, nontraded REITs don’t trade on a national securities exchange and they usually are illiquid for at least eight years.

High fees may come along with Nontraded REITS. These fees can eat away at returns. Fees could include front-end fees as high as 15% of the per share price.

Texas REIT Gets SEC Wells Notice as Nasdaq Delists Its Shares

Published on: October 18, 2016 | by Shepherd Smith Edwards & Kantas, LLP

United Development Funding IV, a Texas real estate investment trust, said that it has received a Wells Notice from the U.S. Securities and Exchange Commission. This is a sign that the regulator’s staff will likely recommend an enforcement action against the mortgage and development REIT. There are individuals connected to the company and its adviser that also received SEC Wells notices.

The UDF REITs have been in trouble for months now, ever since Harvest Exchange, a hedge fund that had a short position in UDV IV shares, published a report about how it believes the company has been run like a Ponzi scam for years. Harvest Exchange claimed that the REIT utilized new capital to pay current investors their distributions, while providing earlier UDF companies hefty liquidity in order to pay earlier investors. The hedge fund noted the earlier companies do not appear to be able to stand on their own without this liquidity from the latest UDF REITs.

UDF IV not only denied the hedge fund’s claims, but also it filed a complaint with the SEC claiming it had been the victim of a securities trading scam in which an investor was building a short stock position to illegally manipulate its shares.

Wells Fargo, Deutsche Bank, and Neuberger Berman Grapple with 401K lawsuits

Published on: October 18, 2016 | by Shepherd Smith Edwards & Kantas, LLP

A plaintiff who is a participant in Wells Fargo’s 401(K) plan is suing the bank. The individual claims that the company’s cross-selling scandal has caused its stock price to drop significantly and this has resulted in hundreds of millions of dollars in damages to the retirement plan.

It was just last month that regulators imposed a $185M fine on Wells Fargo for setting up 2.1 million credit card accounts and unauthorized deposits for banking customers so as to satisfy sales quotas. Some employees allegedly set up debit cards for customers without their knowledge, even assigning them PIN numbers.

Although Wells Fargo is settling with the Los Angeles City Attorney, the U.S. Office of the Comptroller of the Currency, and the U.S. Consumer Financial Protection Bureau, it is not denying or admitting to the allegations.

Artis Capital Management Accused of Not Preventing $6M Insider Trading

Published on: October 17, 2016 | by Shepherd Smith Edwards & Kantas, LLP

A San Francisco-based hedge fund advisory firm has agreed to settle U.S. Securities and Exchange Commission charges alleging its failure to notice that one its employees was engaged in insider trading. Artis Capital Management will disgorge the more than $5.1M in illicit rating profits made by employee Matthew G. Teeple for the firm plus over $1.1M of interest. The hedge fund firm will also pay a more than $2.5M penalty.

According to the regulator, Artis Capital did not maintain policies and procedures adequate enough to prevent insider trading from taking place at the firm. The Commission contends that Teeple’s supervisor, Michael W. Harden, did not respond as needed when red flags arose to indicate that Teeple was engaging in wrongful behavior.

To settle the SEC charges against him, Harden will pay a $130K penalty and serve a 1-year suspension from the securities industry. He and Artis Capital consented to the regulator’s order. However, they did not deny or admit to the Commission’s findings.

FINRA Actions: Former UBS Broker Is Barred for Overvaluing Customer’s Account by Up to $3M, Ex-Broker Allegedly Stole $400K From Parents, Wells Fargo Adviser is Suspended After Client is Victimized in Phishing Scam, and Former Stifel Broker is Accused of Unauthorized Payments

Published on: October 15, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Ex-UBS Broker is Accused of Inflating Customer’s Account

The Financial Industry Regulatory Authority has barred Jeffrey Hamilton Howell from the broker-dealer industry. The former broker is accused of giving a customer bogus weekly account statements that overvalued an account by up to $3M. The alleged misconduct is said to have occurred between 9/2008 and 11/2014.

According to FINRA, Howell sent the customer over 300 Stock Tracking Reports that misstated the client’s portfolio in amounts ranging from $289K to approximately $3M. He purportedly used his personal e-mail to send the customer some of the fake reports. This left UBS with records and books that were not accurate.